TOPIC 10 - Pension products Flashcards
Which method of providing a personal pension income is free from investment risk?
a) Purchasing an annuity.
b) Taking the 25% pension commencement lump sum and leaving the balance in the fund.
c) Taking regular withdrawals using the uncrystallised funds pension lump sum option.
d) Flexi-access drawdown.
a) Purchasing an annuity.
Which of the following is true regarding the NEST scheme?
a) The minimum contribution per employee is 10% of earnings.
b) Contributions can only be made into the default fund.
c) It cannot run alongside an existing occupational scheme.
d) Benefits can be taken from age 55.
d) Benefits can be taken from age 55.
The ‘direct pay’ arrangement is where a personal scheme member pays the contributions directly to the pension provider.
a) True b) False
b) False
Ali has been a member of his company’s 1/50th defined-benefit pension for 20 years and is about to retire. His pensionable salary is £30,000. What will Ali’s pension be?
a) £10,000.
b) £12,000.
c) £15,000.
d) £30,000.
b) £12,000.
When does the Money Purchase Annual Allowance apply to pension contributions? If the plan holder:
a) uses the fund to purchase an annuity.
b) takes benefits before the scheme retirement date.
c) takes benefits through the uncrystallised funds pension lump sum option.
d) earns more than the income threshold.
c) takes benefits through the uncrystallised funds pension lump sum option
Which statement best describes the uncrystallised funds pension lump sum option on a personal pension?
a) 25% of each withdrawal is tax free, with the balance taxed as income.
b) Each withdrawal is taxed as income in the owner’s hands.
c) Each withdrawal will be tax free.
d) The whole fund must be taken, with 25% as a tax-free lump sum.
a) 25% of each withdrawal is tax free, with the balance taxed as income.
Caroline is 38 and earns £25,000 a year as a department manager for a large firm. What is the maximum contribution that could be paid into her personal pension to give her maximum tax relief and avoid any tax penalties?
a) £25,000 from Caroline only.
b) Up to £25,000 between Caroline and her employer.
c) £25,000 from Caroline and £15,000 from her employer.
d) £40,000 from Caroline only.
c) £25,000 from Caroline and £15,000 from her employer.
Alisha is just in the higher-rate tax band. She has a personal pension plan valued at £40,000 and wants to take all of it as one lump sum on her sixtieth birthday next month. How much of the withdrawal will be tax free?
a) It will all be taxable.
b) £30,000.
c) £20,000.
d) £10,000.
d) £10,000.
25% of the pension can be taken as a tax-free lump sum (£40,000 x 25% = £10,000).
Which type of pension scheme is most likely to allow an individual to hold a direct investment in commercial property?
a) A self-invested personal pension.
b) A personal pension.
c) A stakeholder pension.
d) A defined-contribution occupational pension.
a) A self-invested personal pension.
In order to qualify for auto-enrolment, an employee must:
a) opt-in to the scheme.
b) earn more than £5,000.
c) be aged at least 22.
d) be under age 60.
c) be aged at least 22.
Marta is 37 and pays 3 per cent of her salary into a pension
scheme each month. The benefit that she will receive at
retirement depends solely on the investment performance of
the fund. Marta’s pension scheme is:
a) a defined benefit personal pension.
b) a final salary occupational pension.
c) a defined benefit occupational pension.
d) a defined contribution occupational or personal pension.
d) a defined contribution occupational or personal pension.
Explain what is meant by the term ‘lifetime allowance’.
The lifetime allowance is the total amount that an individual may hold in
retirement benefits at the point where the benefits are crystallised without
incurring a tax charge
What rate of tax relief is applied to contributions to an
individual’s pension plan?
a) Basic, higher or additional rate depending upon the
contributor’s marginal rate of tax.
b) Always basic rate.
c) Always higher rate.
d) Basic, higher or additional rate depending upon the pension
provider’s own rules.
a) Basic, higher or additional rate depending upon the
contributor’s marginal rate of tax.
Contributions to AVCs are deducted from gross income. True
or false?
True
Which of the following statements is correct?
An individual may be auto enrolled in a workplace pension
scheme providing they:
a) were born in and are currently working in the UK.
b) are aged between 18 and 55.
c) earn in excess of £10,000 a year.
d) are not liable to higher rate tax.
c) earn in excess of £10,000 a year.
